ITV vs Netflix — they think it’s all over . . . but it isn’t now


ITV’s only shared activity with the BBC — until recently — has been broadcasting the final of the football World Cup. And the commercial TV group has tended to come out of it badly. Even in 1966, when England’s victory drew a peak 32m UK viewers, only 4m watched on ITV and its climactic commentary — Hugh Johns’ “That’s it!”, rather than Kenneth Wolstenholme’s “They think it’s all over . . . it is now” — went largely unheard internationally. By contrast, the American football Super Bowl has boasted global audiences of more than 150m. So, Wednesday’s news that ITV is teaming up with the BBC to compete with another US media phenomenon — video streaming service Netflix — would not appear to promise much.

In fact, the new ITV-BBC subscription video service — called BritBox — can currently only promise more cuts to already falling earnings. ITV said its 2018 adjusted earnings per share were down 4 per cent, as a 5 per cent rise in profit at its Studios production unit was wiped out by a 7 per cent fall at its broadcast and online operations. Net investment in BritBox of £25m this year and £40m next — to make original shows and acquire viewers — will now knock another 3-4 per cent off 2019’s earnings, analysts reckon, and 5 per cent off 2020’s.

ITV has no choice but to invest, though, as it tries to reinvent the old advertising revenue model — which commentators think is all over — and compete with US subscription rivals.

However, some doubt that spending only £65m over the next two years will really level the playing field. Industry estimates suggest Netflix has a global production budget of $13bn and 10m UK subscribers. ITV’s 2019 budget of £25m would only fund a quarter of the Netflix drama series The Crown: just 2.5 hours’ worth. Without World Cup penalty shoot-outs to absorb them, ITV viewers might want more for £5 a month, assuming the BritBox price is pitched below Netflix’s. Pundits tended to agree that “with a relatively thin initial investment, the service will inevitably begin as being Netflix-lite”.

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But that, in many ways, is an advantage. With ITV and the BBC playing catch-up, UK competition regulators cannot cry foul over too much home-team dominance, as they did 10 years ago. ITV’s content budget can also afford to be lower — and its net debt kept below 1.5 times earnings — as it has huge archives of its own shows to put on BritBox at no cost. And ITV already has paying viewers on side: 265,000 now subscribe to its ad-free Hub+ service.

If BritBox looks like a winner, it may be time for the commentary to change. ITV’s Studios revenue is rising, its total advertising revenue was up 1 per cent last year and — tellingly — its viewing figures across all devices rose 3 per cent, to 17.1bn hours, in 2018. Barclays’ analyst noted that: “the market bearish view is based mostly on declining consumption especially among young adults . . . this is not happening yet”. Or, in other words: they think it’s all over . . . it isn’t now.

M&S: bared necessities

Marks and Spencer’s food business is practised in dressing up the bare necessities of life and charging a premium, writes Kate Burgess. The retailer is doing the same with its joint venture with Ocado. The £750m price for half of Ocado’s delivery division is high-end, and is being funded through a dilutive rights issue. It also dresses up two necessities for M&S: first, to come up with a strategy for selling its goods online; second, to hack its dividend.

The strategy should work as long as the JV can persuade Ocado users they are not Waitrose customers at heart and they can still fill their trolleys with all the basics. The hope is that it gains more shoppers through M&S than it loses. But about 40 per cent of M&S customers visit its food halls to pick up a sandwich or a ready-meal. It must work on broadening its product range as well as its footprint. Still, at least M&S’s top team no longer looks like a colony of rabbits in the headlights of online freight. About time.

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About time, too, for the company to stop shelling out nearly 19p a share in dividends. They are covered only 1.3 times by slow-growing earnings. On a yield of 6-plus per cent, M&S’s payout looked vulnerable.

A 10 per cent fall in the shares seems paltry against the 40 per cent cut to investors’ income — back to where it was more than a decade ago. However, the deal is not retrogressive. It puts M&S on the front foot. The market is right to reward M&S for turning the bare necessities of life into a groove.

Inter(self)serving

Interserve’s revised debt-for-equity swap still leaves shareholders all-but-wiped out: ending up with only 5 per cent of a deleveraged outsourcing business rather than 2.5 per cent. Apparently, US hedge fund Coltrane is the most aggrieved, not least at the fees being paid to the same advisers who sapped Carillion’s cash. It is a fair point. But perhaps one not best made by a firm that bet on Carillion’s collapse.

matthew.vincent@ft.com

M&S: kate.burgess@ft.com



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